1. What does cost account- Assess profitability, determine selling prices,
ing/management ac- value inventory, and other decision making
counting help manage-
ment to do?
2. How is cost accounting Cost accounting is for internal stakeholders, has
different from financial no regulations, can be forward-looking, and also
accounting? includes non-monetary information
3. Difference between pro- Production departments have an active involve-
duction departments and ment in productions, whereas non-production
non-production depart- departments are only supportive (e.g. mainte-
ments? nance, storage)
4. What is a cost object? Anything for which we want to calculate the cost
e.g. a product, project, department, service
5. What is a cost unit? The basic measure of a cost object e.g. meal
served, passenger/kilometer. Those with 'per'
are composite cost units.
6. What are the 3 cost ele- Materials, Labour, Other expenses
ments?
7. How to identify when a They cannot be specifically and wholly identified
cost is indirect to a particular cost object.
8. What is a fixed cost? total cost is not affected by level of activity (units
produced). e.g. rent/salary
9. What is a variable cost? total cost is not increased or decreased by lev-
el of activity (units produced) e.g. raw materi-
al/wages
10. What is a semi-variable Have both a fixed and variable element, so starts
cost? at a set level and then increases with units e.g.
basic salary + commission
11. What are the ICAEW fun- (OPPIC). Objectivity, Professional competence,
damental principles? Professional behaviour, Integrity, Confidentiality
, ICAEW Management Information
j
12. What is selection bias? When data is not selected randomly as the
sample is not representative of the population
(usually due to convenience). All members of
the population do not have an equal chance of
selection.
13. What is self-selection When people volunteer/respond to surveys they
bias? are self-selecting, and a certain characteristic
may lead them to do this more than others.
14. What is observer bias? When the researchers' (unconscious) assump-
tions influence their observations and record-
ings.
15. What is omitted variable When a variable is excluded from the data model
bias? and changes are incorrectly attributed to anoth-
er variable.
16. What is cognitive bias? When human perception creates bias through
presentation (infographics, order of data) or an-
choring (from first piece of info or prior year
data).
17. What is confirmation When people focus on data that confirms their
bias? beliefs and ignore data that disagrees with them.
18. What is survivorship By studying successful (or remaining) out-
bias? comes, you miss any contradicting evidence so
the sample is not representative.
19. Is overtime a direct or in- Direct if it is to meet the needs of a particular
direct cost? customer, indirect if it is because there is a gen-
erally heavy workload
20. How does FIFO work? First in, First out. Assumes materials are is-
sued in the order they're received, so issues are
priced at the cost of the earliest delivery with
remaining items in the inventory.
, ICAEW Management Information
j
21. Advantages of FIFO Most likely to be happening physically, so easy
for managers to understand. Valuation is near to
replacement cost.
22. Disadvantages of FIFO Difficult as you need to identify batches. Hard-
er to compare costs and make decisions when
there are different costs for one issue. In high
inflation, inventory will be valued lower than mar-
ket value.
23. How does LIFO work? Last in, First out. Issues are priced according to
the most recent deliveries left in the inventory.
24. Advantages of LIFO Issues are priced close to market value. Man-
agers are more aware of recent costs when
making decisions.
25. Disadvantages of LIFO Difficult as batches can be left part-used in in-
ventory. Often the opposite of what is physically
happening so harder for managers to under-
stand. Harder to compare costs and make de-
cisions when there are different costs for one
issue.
26. How does (cumulative) Issues priced at the average costs of all units left
weighted average pricing in inventory. Average price is recalculated after
work? each new delivery, and is the total cost divided
by total units.
27. Advantages of cumula- Price variations are smoothed out so easier to
tive weighted average use in decision-making. Easier to administer and
explain to managers
28. Disadvantages of cumula- Issue price is rarely an actual price paid per
tive weighted average item and can have several decimal points. With
slow inflation, prices tend to lag behind current
market value.
29. What is periodic weighed
average pricing?
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